Grain pricing orders give you piece of mind by letting you set a target price for a specified number of tonnes and delivery period.
You work with your customer service representative at P&H to set the target price and then walk away. We will call you if the market reaches or surpasses the price you set. Once your target price is met, the GPO becomes a legally binding contract.
Big trends in the market are generally seen over weeks or months. But capturing a brief spike in the market is difficult. It can be deflating to realize you missed a jump in the overnight market only to see the price settle back down by the time you glance at the news.
You can change the target price for your GPO if the market turns bullish and you think your original target price was too conservative. The only caveat is that you must change the target price or cancel the order during business hours.
As you build your marketing plan, you can choose to sell only the portion of your crop that is covered by crop insurance in order to protect yourself from production issues.
Some analysts recommend that growers aim to sell at a price that is above the average price of the year. Talk with your Grain Originator; they can help you think through your target price based on historical data and market projections.
To confidently set a GPO you need to know your cost of production. Divide your total cost attributed to that crop by the total expected yield. Once you know your break-even price you can look at the markets and plant a flag in the ground based on where you see prices going. Of course, cash cost, fixed costs and cash flow must be considered as you set prices. You can divide your projected crop based on your appetite for risk, leaving a portion of your crop to capture unexpected upside.
GPOs remove some of the emotion from marketing grain. The fever of a bullish market can be dangerous, especially in a rapidly changing market. If you think the market is going to keep climbing, you may miss good prices as the market returns to normal before you price your crop.
GPOs should be used with other types of contracts in a well- rounded marketing plan. A basis contract is another good tool to use. It allows you to lock-in basis, choosing a narrow basis before delivery month.
Work with your Grain Originator. They are a good resource to talk through your marketing plan and can help you set up GPOs to market a portion of your crop.